Don’t Forget to Register with California’s Registry of Charitable Trusts

Don’t Forget To Register with California’s Registry of Charitable Trusts!

All charitable corporations holding assets for charitable purposes or doing business in California must register with the California’s Registry of Charitable Trusts. There are very few exceptions to this rule. New regulations applicable as of January 1, 2016, make the consequences of a failure to register very severe, and may include suspension of the authority to operate and fundraise in California, seizure of assets, and the imposition of personal liability on directors.

Does my organization have to register?

The registration requirement applies to all corporations, unincorporated associations, trustees, and other legal entities holding property for charitable purposes in California. Effectively, this means all organizations exempt under section 501(c)(3) of the Internal Revenue Code that are operating, fundraising, or holding assets in California. Operating can include hiring an employee, opening an office (even in a co-working or virtual office space), and having a bank account in California.

In addition, the registration requirement applies to:

Commercial fundraisers for charitable purposes

Fundraising counsel for charitable purposes and

Commercial co-venturers.

This article will not discuss the application of registration laws to these for-profit entities. For more information, see this article.

How do I register?

Charitable organizations initially register using Form CT-1 located here. Instructions are here. They must annually renew the registration as described below. Registration and renewal forms maybe submitted via email to rct@doj.ca.gov, but the registration or renewal fee must be submitted by mail to the address on the form.

When do I need to register?

Initial registration must occur within 30 days of receiving assets in California.

Do I need to do anything else?

Yes.

Annual Registration Renewals: Every year, charitable organizations must renew their registration within four months and fifteen days of the end of the corporation’s accounting year. For a calendar year filer, this means by May 15th. The annual registration renewal form is the Form RRF-1 located here. Instructions are here.

Address Updates: Charitable organizations are obligated to keep the Registry informed of any address changes. Presumably, an organization can notify the Registry of an address change via email to rct@doj.ca.gov or via post.

Change of Status Updates: Charitable organizations are further obligated to notify the Registry if there is any change in tax-exempt or corporate status. This notice must occur within 10 days of the change. For example, if a charitable corporation loses its 501(c)(3) exemption or is suspended by the California Secretary of State, it must notify the Registry of Charitable Trusts within 10 days of the effective date. Notification can occur by emailing the Registry at rct@doj.ca.gov or through sending a letter to the Registry’s address.

Yes. The Registry maintains a database of all registered entities available here. You can search for your own and other organizations. Many of the founding documents of an organization are available on the database.

What happens if I fail to register or to renew my registration?

Failure to Register

Charitable organizations that are not registered with the Attorney General cannot operate or solicit funds for charitable purposes in California. Continuing to operate can result in fines (described below) as well as cease and desist orders from the Attorney General.

Failure to Renew

Registered charitable organizations that fail to renew their registration for three consecutive years are automatically suspended by the Registry. Prior to suspension, the Registry will mail a notice to the organization providing the reason for suspension and giving the organization 30 days to cure. If it does not fix the violation, the organization will remain in suspension for a year, after which time its registration status will be revoked. Suspended and revoked organizations cannot operate or solicit in California and are subject to the same penalties as an unregistered charity.

Penalties for Failure to Register or Renew

If the charity is operating without registration or fails to renew its registration on time, the Attorney General can assess a penalty of up to $1,000 per action or omission in violation of the prohibition on operating and soliciting. For example, each solicitation call, mailing, or request can be subject to a $1,000 fine. In the case of an ongoing act or omission, such as a failure to renew registration, the Attorney General can impose a penalty of $100 per day until the violation is corrected.

The Registry will provide notice and an opportunity to cure before assessing penalties against a charity. If the charity is operating without registration, the Registry will provide 5 days notice. If the charity has failed to timely renew, the Registry will provide 30 days notice.

Additional Consequences of Suspension and Revocation

Suspended or revoked charities may not distribute or expend any charitable assets without the written approval of the Attorney General. Board members and any person directly involved in distributing or expending charitable assets may be held personally liable for those assets. The Attorney General can direct a suspended or revoked charity to distribute some or all of its charitable assets to another charitable organization or into a blocked bank account.

Within 30 days of revocation, a charitable organization must provide to the Attorney General an accounting of all charitable assets within its control for 180 days prior to the date of the revocation order. The Attorney General may also require an accounting of charitable assets for up to ten years prior to the date of revocation.

How do I know if my organization is suspended or revoked?

The organization can check its status on the Registry’s database here. In addition, the Registry will provide written notice of suspension or revocation by mail sent to the address of record for the organization.

Why has my organization been suspended or revoked by the Attorney General’s office?

An organization may be suspended or revoked for a number of reasons. The reasons for suspension or revocation will be in the notice letter from the Registry. You can also request an explanation from the Registry by contacting them using any of the methods (post, email, phone) listed above.

Reasons for automatic suspension include:

Revocation of tax-exempt status by the Internal Revenue Service or the California Franchise Tax Board.

Failure to renew registration for three consecutive years.

Suspension of corporate status by the California Secretary of State.

Failure to timely pay a penalty.

The Attorney General also has discretion to suspend or revoke a charity on the following grounds:

Misuse of charitable assets.

False or misleading statements or conduct with a solicitation for charitable purposes.

False or misleading statements in the Registry registration and renewal filings, or in IRS or FTB annual information returns.

Failure to comply with standards of conduct applicable to California nonprofit boards.

Failure to prepare audited financials if required under California law.

Failure to produce records in response to a request by the Attorney General.

An adverse action (including a judgment, fine, penalty, settlement agreement) by a government entity related to operation of the charity.

How do I request relief from suspended or revoked status?

Once a charity is suspended, the only way to request relief is to file an appeal with the Attorney General. This must be filed within 30 calendar days of the date of the written notice of suspension; otherwise the right to appeal is waived.

The appeal must be in writing and include:

The name of the charity and the person appealing on its behalf,

The address and telephone number of the person appealing,

The registration number (if any) of the charity and,

A statement of the basis of the appeal.

After submission of the appeal, the charity will receive notice of the date, time, and place of a hearing before an administrative hearing officer. Failure to appear at the hearing is deemed a withdrawal of the appeal. After the hearing, the officer will provide a proposed decision to the charity and provide 15 days for additional submissions in response to the proposed decision. After this process is complete, the Attorney General will make a final decision regarding the appeal. Suspension will remain in place during the appeal process.

Why do I have to do all of this?

The Attorney General’s Office of Charitable Trusts is responsible for ensuring that charities in California comply with the law. It is charged with protecting charitable assets in California so that they are used for charitable and not for private purposes. To track and gather information about charities in California, it maintains the Registry of Charitable Trusts. The new regulations and penalties for failure to register are severe but represent an attempt by the Attorney General to ensure that charities, and their boards, provide information to the Attorney to enable it to effectively conduct its enforcement mandate and do not take lightly their legal responsibilities as charities operating in California.